Bitcoin and CEE stock markets: fresh evidence from using the DECO-GARCH model and quantile on quantile regression

• Ngo Thai Hung ^[1]
  1. [1] University of Finance-Marketing, Ho Chi Minh City, Vietnam
• Localización: European journal of management and business economics, ISSN-e 2444-8494, ISSN 2444-8451, Vol. 30, Nº. 2, 2021, págs. 135-154
• Idioma: español
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• Resumen

  • Purpose – This study examines the inter-linkages between Bitcoin prices and CEE stock markets (Hungary, the Czech Republic, Poland, Romania and Croatia).

    Design/methodology/approach – The dynamic contemporaneous nexus has been analyzed using both the multivariate DECO-GARCH model proposed by Engle and Kelly (2012) and quantile on quantile (QQ) methodology proposed by Sim and Zhou (2015). Our study is implemented using the daily data spanning from 6 September 2012 to 12 August 2019.

    Findings – First, the findings show that the average return equicorrelation across Bitcoin prices and CEE stock indices are positive, even though it is found to be time-varying over the research period shown. Second, the Bitcoin-CEE stock market association has positive signs for most pairs of quantiles of both variables and represents a rather similar pattern for the cases of Poland, the Czech Republic and Croatia. However, a weaker and primarily negative connectedness is found for Hungary and Romania, respectively. Furthermore, the interconnectedness between the co-movements in the Bitcoin market and stock returns changes significantly across quantiles of both variables within each nation, indicating that the Bitcoin-stock market relationship is dependent on both the cycle of the stock market and the nature of Bitcoin price shocks.

    Practical implications – The evidence documented in this study has significant implications for divergent economic agents, including global investors, risk managers and policymakers, who would benefit from a comprehensive knowledge of the Bitcoin-stock market relationship to build efficient risk-hedging models and to conduct appropriate policy reactions to information spillover effects in different time horizons.

    Originality/value – This paper is the first study employing both the multivariate DECO-GARCH model and QQ methodology to shed light on the nexus between Bitcoin prices and the stock markets in CEE countries. The DECO model uses more information to compute dynamic correlations between each pair of returns than standard dynamic conditional correlation (DCC) models, declining the estimation noise of the correlations.

    Besides, QQ approach allows us to capture some nuanced features of the Bitcoin-stock market relationship and explore the interdependence in its entirely. Therefore, the main contribution of this article to the related literature in this field is significant.